Goatriders of the Apocalypse

TribCo Files for bankruptcy - Cubs supposedly uneffected

In news that should not have surprised anyone, the Tribune Company filed for bankruptcy today. The filing, a chapter 11 variety, keeps TribCo in business and means that operational changes will be minimal. The goal of the bankruptcy declaration is to force creditors to negotiate with the company and accept less favorable terms on their debt. In many bankruptcies, the debt holders become the new owners and equity holders (prior owners) are forced out. (It is possible that Sam Zell's time at the helm of HMS TribCo is severely limited.)

While the news of Tribune's filing is not good for Cubs fans, their is a silver lining. Arguing that the team is a separate (healthy) business, TribCo excluded the club and the stadium from the filing. In a charmed world, this means the sale of the club would continue unimpeded... but a glance at the headlines this year indicates 2008 does not lend itself to the description: 'charmed world.'

The first hiccup in the sale process is likely to focus on the portion of Comcast SportsNet that was originally intended to be sold along with the club. (Without inside information, I'm not sure the following is true, but I can speculate.) The three bids that have been filed most likely included a purchase of the ComCast channel. However, the ComCast channel is included in the bankruptcy filing, so the bids received Dec. 1 are likely invalid, or in need of substantial modification. There are (at least) two scenarios in play here.

Scenario 1: The club and ballpark ("the two assets") are sold without ComCast. Either the bankruptcy judge allows the decision not to include the two assets in the bankruptcy filing to stand (possible), or the Creditors don't petition the judge to force Tribune to include the two assets in the bankruptcy filing (unlikely). Regardless, if the two assets escape the bankruptcy filing, the sale would proceed along the same timeline as planned, with the only modification being that the bidders reduce their bid by the amount of value they had previously assigned to the ComCast share.

Scenario 2: The interested parties still plan on selling the club, the ballpark, and ComCast together. If this is the case, the sale process would be delayed at by at least a few months because when an asset is subject to bankruptcy, the creditors may object to a sale if they feel that it is not valued properly. In this case, not only do the other MLB owners have a say in the sale, but so do the Tribune creditors and the bankruptcy judge.

In another related note, I can easily see MLB's antitrust exemption coming under close scrutiny because of this filing. I am predicting right now that creditors will object to today's filing. TribCo will be forced to include the club and ballpark as part of their assets in an amended filing. The sale of all three assets will then be subject to creditor approval, judicial approval, and MLB owners approval. If the MLB owners were to reject the highest bidder, the probability of the antitrust exemption being challenged by the creditors would be nearly 100% in my estimation.

Of further interest, let us also remember that the antitrust exemption is not so much an affirmative exemption as a refusal by federal courts to take jurisdiction in matters related to Major League Baseball. The exemption was established and upheld when the Supreme Court laughably decided that MLB did not participate in 'interstate commerce' and thus was not subject to federal antitrust laws. The Supreme Court indicated that Congress had the power to pass legislation and revoke this exemption, but Congress never has. However, the legal reasoning behind the case was severely flawed and the Federal courts now operate under a much broader interpretation of interstate commerce. (Counterpoint, TribCo apparently filed in Delaware state court, but its certainly possible that creditors will push for a change of venue to a federal appeals court, thus settling the jurisdiction hurdle to challenge the antitrust exemption.)

What then are my conclusions?

No one is happy tonight.
• Sam Zell might be relieved that he's likely done at the Trib, but I believe he's lost over a billion personally.
• Tribune Company employees who are fortunate enough to still be employed may have their entire Employee Stock Ownership Program wiped out (if my understanding of TribCo's capital structure is correct.)
• Cubs bidders are probably upset because this will delay the sale of the team.
• Cubs fans are upset because this will delay the sale of the team.
• Cubs management should be upset because the club will be included in the bankruptcy before long and budgets will be slashed accordingly.
• Bud Selig and the MLB owners are upset because there's now another viable avenue to attack the antitrust exemption, plus they're really going to be pissed that one of their club members is going to be in bankruptcy court.
• Don Fehr and the players union are uneasy because in the nightmare situation, the club is included in the bankruptcy filing and all of the players' contracts could possibly be declared null and void.

Byron Clarke is a CPA with no detailed knowledge of bankruptcy laws, legal jurisdictions, or the Tribune Company's specific situation. He is, however, a baseball hobbyist who finds the business of baseball thoroughly interesting and has generally followed baseball business proceedings in the media. Everything above was pure speculation. If you want to read an actual piece of journalism about the bankruptcy filing, check out the NYTimes.

One thing I thought I heard

The Tribune isn't currently in default with any particular creditor, but a nearly $600MM debt payment is due in June, and the Chapter 11 filing is primarily looking to "prove" that currently the Tribune is in no shape to make good on the June payment.

Does this mean they still have some latitude on being able to sell off assets?

Conserving Cash

I believe I saw that they filed yesterday because they owed $100 million to a creditor today and didn't want to continue bleeding cash when the inevitable was coming.

If I understand chapter 11 correctly, as soon as the bankruptcy is filed, the management can't sell any major assets without prior approval by creditors and a judge. For example, if I offered a billion for WGN radio tomorrow, TribCo would not be able to accept until the creditors and judge signed off, even if they haven't missed any payments yet.

Chicago Tribune's Chicago's Best Blogs award